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In the past few days we have received better-than-expected 1Q earnings reportsfrom Walmart, Home Depot, and Lowe's. The late reports from these and other retailers (the fiscal 1Q at
retailers generally ends in April rather than March) round out a strong first quarter earnings season for the types of large, multi-national blue chip companies that we favor at Farr, Miller
& Washington. By and large, big BLUE-CHIP COMPANIES ARE EXECUTING WELL and have very strong balance sheets. In fact, the debt of several large-cap US multi-nationals is yielding less
than like-duration US Treasury bonds. THIS IS THE FIRST TIME IN HISTORY THIS HAS HAPPENED. So why are the stocks of large-cap multi-nationals so cheap, and why are they lagging the broad
market? The European Debt Crisis - See Complete Coverage "Greece is the word." Actually, Europe is probably the word, but it doesn't rhyme so well in the song. As the European
Central Bank (ECB) tries to collect itself and figure out how to prevent a Lehman-like meltdown in sovereign debt, investors are scrambling to protect themselves from losses in the event of
a worst-case scenario. in the Dow Jones Industrial Average was in tandem with a rally for the dollar to $1.22 vs. the Euro. As that currency rally reversed, stock prices began to climb from
a 184 point loss to a very small gain. The recent market message has been STRONGER DOLLAR = WEAKER SHARE PRICES. If that seems counter-intuitive, you're in good company. The rationale,
as we understand it, is that dollar strength correlates to Europe's weakness. Dollar strength, therefore, represents a flight to safety from weaker currencies. As bad as our rising
deficit and growing debt may be, the US looks less bad than alternatives. That's not a resounding endorsement by any stretch, but water is precious in the desert. Stock prices are
unhappy because European austerity measures combined with a debt crisis stifle hopes of a vigorous global economic recovery. THAT MAKES EUROPE A WEAKER CUSTOMER FOR US GOODS AND SERVICES.
The stronger dollar makes US goods and services more expensive for all of our trading partners and therefore threatens to further skew the trade deficit. (Track The Dollar Here) The headline
on Bloomberg this morning is _Stocks Rally, Oil, Copper Rebound as Concerns Over European Debt Subside_. There is no mention of strong earnings gains. Based on the corporate results posted
to date, including those from HD, LOW and WMT, it appears as though the economic rebound is on track. However, the European debt issues, as well as lingering problems in the US housing and
employment sectors, warrant continued caution going forward. Wal-Mart CEO, Michael Duke said that "customers, especially in the US, are still concerned about personal finances and
unemployment." And the 1Q sales strength at HD and LOW (relative to expectations) can at least partially be attributed to government stimulus initiatives and better weather. Lowe's
CEO Robert Niblock said, "We're optimistic we'll continue to see solid sales through the balance of the year with gradual improvement in core demand, but we still view 2010
as a year of transition for our industry, and it will likely be 2011 before we see significant growth." Debtor Nations Faithful readers may recognize consistent themes from our weekly
commentary becoming manifest in these recent reports. The growing importance of international demand supports our long-held argument in favor of large, blue-chip multi-national corporations.
Our portfolios maintain a defensive posture, and earnings news for theses types of names has been very positive. Stay the course, and fight the temptation to lean too far over your skis. *
Where Would Pre-Euro Currencies Trade at Now? * What Will German Short Ban Mean for Investors? * CNBC Guest Blogs: Great People-Great Ideas __________________________________________________
_Michael K. Farr is President and majority owner of investment management firm Farr, Miller & Washington, LLC in Washington, D.C. Mr. Farr is a Contributor for CNBC television, and he
is quoted regularly in the Wall Street Journal, Businessweek, USA Today, and many other publications. He has been in the investment business for over twenty years._